Go Lean…Caribbean

Go Lean Commentary

“Trade and Marketplaces” are great strategies. So says the below news story and VIDEO.

The book Go Lean…Caribbean calls for the introduction and implementation of the Caribbean Union Trade Federation (CU). With that branding “Trade Federation”, obviously there is an emphasis on Trade activities. Why?

The book explained that the proper management of trade can increase wealth. The book relates the following on Page 21:

Voluntary Trade Creates Wealth: People specialize in the production of certain goods and services because they expect to gain from it. People trade what they produce with other people when they think they can gain something from the exchange. Some benefits of voluntary trade include higher standards of living and broader choices of goods and services.

The foregoing article stresses that there is a role model for modern industrial policy in the country/region for Latin America as a whole (and the Caribbean specifically): the East Asian Tigers, or South Korea more specifically.

Sub-title: The case for a modern industrial policy
ONCE again, Latin America has a growth problem. After a dozen golden years of economic expansion and falling poverty, the region is likely to grow by only around 1.5% this year. Argentina, Brazil and Venezuela are suffering recessions of varying severity. Even high-flyers like Peru and Chile have slowed to a crawl; growth in Mexico, where reforms promise much, has yet to take off.

The immediate reasons are not hard to divine. The commodity boom has waned and, in some places, years of fiscal populism are coming home to roost. Low unemployment and a population that is starting to age mean that growth can no longer come from adding workers. If the region is to return to faster expansion, it must raise productivity.

Yet here the region has a lamentable record (see chart) – and for familiar reasons: red tape and the informal economy, poor education and infrastructure, and a lack of competition and credit. But according to a new study* by the Inter-American Development Bank (IDB), there is another factor. Unlike many East Asian countries, Latin America has eschewed state action to stimulate the development of higher-productivity sectors and businesses.

Industrial policy, as it used to be called, went out of fashion in the region in the 1980s, and for good reason. In Latin America it was mainly deployed in the cause of import substitution. All too often, it sheltered favoured low-productivity firms from the foreign competition that would have made them more efficient. In South Korea, by contrast, industrial policy was more ruthless: state help for businesses was temporary and linked to performance in exports and innovation.

Because of this dismal history, the IDB rebrands “industrial policy” as “productive development policies”. That signals not only that such policies should apply to services and farming as well as manufacturing, but also that they should avoid past mistakes. They are justified, the authors caution, only when they aim to develop a latent or potential comparative advantage and when market forces have failed to do this. And the remedy should directly address the market failure.

There is much to do. Latin America is poor at innovation. Spending on research and development in the region, as a share of GDP, is less than half that in developed countries, which have seven times as many researchers per 1,000 workers. Tax breaks can stimulate innovation, especially when they reward the hiring of researchers and collaboration between universities and firms in competitive industries.

State intervention may also be justified in order to overcome “co-ordination failures”—where several firms would potentially benefit but no one will organise a scheme to pay for, say, setting up a temperature-controlled “cold chain” for the export of fruit and vegetables. Costa Rica’s investment agency helped to develop a surgical-devices industry by persuading an American firm to set up a sterilising service in the country. Argentina’s INTA, a public agricultural-technology institute, worked with local farmers to develop more productive strains of rice.

The biggest challenge is for the state to incubate new higher-value industries—without falling prey to special pleading. There are several such success stories in Latin America. The origins of Embraer, a Brazilian aircraft manufacturer, lie in a public aeronautical-technology institute. Fundación Chile, a private development agency with a public-policy remit, created a salmon-farming industry. But such initiatives will work only if governments have the technical and institutional capacity to carry them out, the IDB warns. It thinks projects should be subject to external evaluation. South   Korea’s example suggests that sunset clauses in state support and subjecting firms to the discipline of foreign competition is crucial.

Some chapters of the IDB study are indigestible, written for economists rather than politicians. It pulls some punches: although it criticises the protection of rice farmers in small Costa Rica, it is silent about the recent use of subsidies and protection in Brazil and Argentina to cosset declining or established industries.

But its argument for a modern industrial policy is timely. Indeed, it is already being applied. This year Peru’s production minister, Piero Ghezzi, unveiled a “productive diversification plan”, the first step of which is the opening of ten technological-innovation centres. Peruvian man cannot live by mining alone. Sensible government policies can help.
The Economist Magazine (Retrieved 09/20/2014) – http://www.economist.com/news/americas/21618785-case-modern-industrial-policy-latin-americas-korean-dream

——

* ^{“Rethinking Productive Development: Sound Policies and Institutions for Economic Transformation”, edited by Gustavo Crespi, Eduardo Fernández-Arias and Ernesto Stein, IDB}

The foregoing article indicates that Latin America countries can do better in managing their industrial policy and macro-economics. This point is stressed in the Go Lean book, pronounced in the opening Declaration of Interdependence – Page 13:

xxiv.Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

The Go Lean roadmap calls for confederating 30 member-states of the Caribbean, despite their language and legacy, into an integrated “single market. The resulting entity will increase trade within the region and with the rest of the world, increasing the economy (GDP) from $378 Billion (per 2010) to $800 Billion. This growth is based on new jobs, industrial output and lean operational efficiency.

The Go Lean book posits that this growth is only possible with the integrated economy, not with individual member-states growing on their own, “the whole is worth more than the sum of its parts“. But economic issues alone do not complete the solution, in fact the CU roadmap cites these 3 prime directives:

• Optimization of the economic engines so as to grow the regional economy to $800 Billion and create 2.2 million new jobs.
• Establishment of a security apparatus (with prosecutorial powers for economic crimes) so as to mitigate the eventual emergence of “bad actors”.
• Improve Caribbean governance.

Growth in the Caribbean is a strong theme for the Go Lean… Caribbean book and a frequent topic for these Go Lean blogs. These points of economy, security and governance have also been detailed in previous Go Lean blogs/commentaries. The following is a sample:

The following is a sample:

Now the foregoing news article points that there is value in analyzing the transformation of the East Asian nation-states. These countries provide great lessons, samples and examples of convergence, in which under-developed countries apply the catch-up principle to grow their economies to “developed” status. The Go Lean book details this progress (Page 69) for the sample countries of Singapore, Hong Kong, Taiwan and South Korea.

The CU roadmap likewise drives change among economic, security and governing engines to guide the Caribbean member-states to the destination of elevated societies – a better place to live, work and place. This change is based on new community ethos, strategies, tactics, implementations and advocates; sampled as follows:

The foregoing news article identifies new industrial policies for Latin America. But the focus of the book Go Lean…Caribbean and accompanying blogs is the Caribbean alone, a sub-set of Latin America. Trade is very much critical to the strategies to grow the regional economy. Increased trade will undoubtedly mean increased job opportunities. The CU/Go Lean plan is to foster and incubate key industries for this goal, incorporating suggestions, recommendations and best-practices as related in the foregoing article. This too was pronounced early in the opening Declaration of Interdependence (Page 14), as follows:

xxvi. Whereas the Caribbean region must have new jobs to empower the engines of the economy and create the income sources for prosperity, and encourage the next generation to forge their dreams right at home, the Federation must therefore foster the development of new industries, like that of ship-building, automobile manufacturing, prefabricated housing, frozen foods, pipelines, call centers, and the prison industrial complex.

Despite many previous efforts to expand Caribbean trade, this new Go Lean effort takes a novel approach, that of the Trade Federation. This entity would do the heavy-lifting of elevating the Caribbean economy, security and governing engines. This roadmap would include a “marketplace”, with all the dimensions highlighted in the following VIDEO:

Video: https://www.youtube.com/watch?v=BUp3Q6O8IYg

For the Caribbean, the status quo cannot continue. It is time for the region, the people and institutions, to lean in to this roadmap for change, to make the Caribbean a better place to live, work and play. It is worth the effort and investment.  🙂

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